Question 1

Investment banks sometimes act as an agent for the issuer on a best efforts basis, whereby they are paid with a fixed commission.

Accepted Answer

A) True 
 B)False

Question 2

Exchange traded funds (ETFs) can be bought and sold in dealer markets anytime during the day.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements best describes private placements?

Accepted Answer

A)   In a private placement, securities are sold to private (individual)  investors rather than to institutions.
B)   Private placements occur most frequently with stocks, but bonds can also be sold in a private placement.
C)   Private placements are convenient for issuers, but the convenience is offset by higher flotation costs.
D)   Private placements can generally bring in funds faster than is the case with public offerings.E) A) and C)
F) C) and D)

Question 4

Best efforts deals are commonly used by well-known, established issuers.

Accepted Answer

A) True 
 B)False

Question 5

Since providing updated information about company activities and status is costly, it has absolutely no advantage for firms.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is an advantage of going private?

Accepted Answer

A)   reduced managerial flexibility
B)   lower shareholder participation
C)   higher cost in security registration
D)   increased managerial efficiencyE) All of the above
F) None of the above

Question 7

Which of the following is true about equity carve-outs?

Accepted Answer

A)   They are overpriced issues.
B)   They are sold by private placements.
C)   No prospectus is required.
D)   They are a special type of IPO.E) All of the above
F) C) and D)

Question 8

An underwriter follows a best efforts basis to sell 2 million shares at $10 a piece. Such a public offering price has included a $1 spread. How much will the issuer receive if only 1.5 million shares are sold in this issue?

Accepted Answer

A)   $20.0 million
B)   $18.0 million
C)   $15.0 million
D)   $13.5 millionE) None of the above
F) C) and D)

Question 9

Going public means a company is required to disclose information to the public for investigation.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is INCORRECT?

Accepted Answer

A)   When a corporation's shares are owned by a few individuals who own most of the stock or are part of the firm's management, we say that the firm is "closely, or privately, held."
B)   "Going public" establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the firm's shares.
C)   When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public," and the market for such stock is called the new issue market.
D)   It is possible for a firm to go public and yet not raise any additional new capital.E) A) and B)
F) A) and C)

Question 11

What is the money offered to fund a start-up company?

Accepted Answer

A)   a private placement
B)   a bought deal
C)   project financing
D)   venture capital fundE) None of the above
F) All of the above

Question 12

Syndicated offerings gain publicity because institutional investors are involved with marketing functions.

Accepted Answer

A) True 
 B)False

Question 13

One big advantage of going private through a leverage buyout is the tax shields from the borrowing.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following stock index is NOT value weighted?

Accepted Answer

A)   Dow Jones industrial Average (DJI
A)  .
B)   S&P 500 Index.
C)   S&P/TSX 60 Index.
D)   NYSE Composite Index.E) A) and B)
F) B) and C)

Question 15

Which of the following projects is more likely to be funded with project financing by investors?

Accepted Answer

A)   smaller-scale but complex projects
B)   large-scale and stable projects
C)   smaller-scale and independent projects
D)   large-scale and risky projectsE) B) and C)
F) A) and B)

Question 16

Which of the following factors would increase the likelihood that a company would call its outstanding bonds at this time?

Accepted Answer

A)   The yield to maturity on the company's outstanding bonds increases due to a weakening of the firm's financial situation.
B)   A provision in the bond indenture lowers the call price on specific dates, and yesterday was one of those dates.
C)   The flotation costs associated with issuing new bonds rise.
D)   The firm's CFO believes that interest rates are likely to decline in the future.E) B) and D)
F) A) and C)

Question 17

What is the required after-tax refunding investment outlay, i.e., the cash outlay at the time of the refunding?

Accepted Answer

A)   $5,315,725
B)   $5,595,500
C)   $5,890,000
D)   $6,200,000E) C) and D)
F) A) and D)

Question 18

Which of the following is true regarding the Canadian securities industry?

Accepted Answer

A)   The industry is very concentrated.
B)   The industry is unregulated.
C)   The industry is not governed nationally.
D)   The industry is supervised by the Canadian Security Association.E) C) and D)
F) B) and D)

Question 19

Suppose a company issued 30-year bonds 4 years ago, when the yield curve was inverted. Since then, long-term rates (10 years or longer) have remained constant, but the yield curve has resumed its normal upward slope. Under such conditions, a bond refunding would almost certainly be profitable.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements best describes debt?

Accepted Answer

A)   If new debt is used to refund old debt, the correct discount rate to use in the refunding analysis is the before-tax cost of new debt.
B)   The key benefits associated with refunding debt are the reduction in the firm's debt ratio and the creation of more reserve borrowing capacity.
C)   The mechanics of finding the NPV of a refunding decision are fairly straightforward. However, the decision of when to refund is not always clear because it requires a forecast of future interest rates.
D)   If a firm with a positive NPV refunding project delays refunding and interest rates rise, the firm can still obtain the entire NPV by locking in a low coupon rate when the rates are low, even though it actually refunds the debt after rates have risen.E) None of the above
F) A) and C)

Exam 14: Initial Public Offerings, Investment Banking, and Financial Restructuring

Going public means a company is required to disclose information to the public for investigation.

Correct AnswerverifiedShow Answer

One big advantage of going private through a leverage buyout is the tax shields from the borrowing.

Correct AnswerverifiedShow Answer

An underwriter follows a best efforts basis to sell 2 million shares at $10 a piece. Such a public offering price has included a $1 spread. How much will the issuer receive if only 1.5 million shares are sold in this issue?

Correct AnswerverifiedShow Answer

Which of the following is an advantage of going private?

Correct AnswerverifiedShow Answer

Best efforts deals are commonly used by well-known, established issuers.

Correct AnswerverifiedShow Answer

Syndicated offerings gain publicity because institutional investors are involved with marketing functions.

Correct AnswerverifiedShow Answer

Which of the following factors would increase the likelihood that a company would call its outstanding bonds at this time?

Correct AnswerverifiedShow Answer

Which of the following is true regarding the Canadian securities industry?

Correct AnswerverifiedShow Answer

Which of the following statements is INCORRECT?

Correct AnswerverifiedShow Answer

What is the money offered to fund a start-up company?

Correct AnswerverifiedShow Answer

Exchange traded funds (ETFs) can be bought and sold in dealer markets anytime during the day.

Correct AnswerverifiedShow Answer

Suppose a company issued 30-year bonds 4 years ago, when the yield curve was inverted. Since then, long-term rates (10 years or longer) have remained constant, but the yield curve has resumed its normal upward slope. Under such conditions, a bond refunding would almost certainly be profitable.

Correct AnswerverifiedShow Answer

What is the required after-tax refunding investment outlay, i.e., the cash outlay at the time of the refunding?

Correct AnswerverifiedShow Answer

Which of the following stock index is NOT value weighted?

Correct AnswerverifiedShow Answer

Which of the following is true about equity carve-outs?

Correct AnswerverifiedShow Answer

Which of the following statements best describes private placements?

Correct AnswerverifiedShow Answer

Which of the following projects is more likely to be funded with project financing by investors?

Correct AnswerverifiedShow Answer

Investment banks sometimes act as an agent for the issuer on a best efforts basis, whereby they are paid with a fixed commission.

Correct AnswerverifiedShow Answer

Since providing updated information about company activities and status is costly, it has absolutely no advantage for firms.

Correct AnswerverifiedShow Answer

Which of the following statements best describes debt?

Correct AnswerverifiedShow Answer

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